A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. Transition economies undergo economic liberalization, where market forces set prices rather than a central planning organization. In addition to this trade barriers are removed, there is a push to privatize state-owned businesses and resources, and a financial sector is created to facilitate macroeconomic stabilization and the movement of private capital.

The transition process is usually characterized by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions and the promotion of private-owned enterprises, markets and independent financial institutions.

The economic development in India followed socialist-inspired policies for most of its independent history, including state-ownership of many sectors; extensive regulation and red tape known as "License Raj"; and isolation from the world economy. India's per capita income increased at only around 1% annualized rate in the three decades after Independence. Since the mid-1980s, India has slowly opened up its markets through economic liberalization. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a free market economy.

In the late 2000s, India's growth reached 7.5%, which will double the average income in a decade. Analysts say that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's 2011 target of 10%. States have large responsibilities over their economies. Maharashtra has proved all time hit contributor to boost up the economic rise since independence. The annualized 1999-2008 growth rates for Tamil Nadu (9.8), Gujarat (9.6%), Haryana?(9.1%), or Delhi (8.9%) were significantly higher than for Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh?(6.5%). India is the fourth-largest economy in the world and the third largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks128th in the world or 118th by PPP.

The economic growth has been driven by the expansion of services that have been growing consistently faster than other sectors. It is argued that the pattern of Indian development has been a specific one and that the country may be able to skip the intermediate industrialization-led phase in the transformation of its economic structure. Serious concerns have been raised about the jobless nature of the economic growth.

Favorable macroeconomic performance has been a necessary but not sufficient condition for the significant reduction of poverty among the Indian population. The rate of poverty decline has not been higher in the post-reform period (since 1991). The improvements in some other non-economic dimensions of social development have been even less favorable. The most pronounced example is an exceptionally high and persistent level of child malnutrition (46% in 2005-6).

The progress of economic reforms in India is followed closely. The World Bank suggests that the most important priorities are public sector reform, infrastructure, agricultural and rural development, removal of labor regulations, reforms in lagging states, and HIV/AIDS. For 2010, India ranked 133rd in Ease of Doing Business Index, which is setback as compared with China 89th and Brazil 129th. According to Index of Economic Freedom World Ranking an annual survey on economic freedom of the nations, India ranks 124th as compared with China and Russia which ranks 140th and 143rd respectively in 2010.

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. India has recorded a growth of over 200 times in per capita income in a period from 1947 (INR 249.6) to 2011. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labour force, growth in the manufacturing sector due to rising education levels and engineering skills and considerable foreign investments. India is the nineteenth largest exporter and tenth largest importer in the world. Economic growth rate stood at around 6.5% for the 2011-12 fiscal year, as against 8.4% achieved in each of two preceding years. The sharp decline in India's GDP growth rates is mainly due to the Central bank's high-interest regime & it is widely believed reduction in key interest rates would immediately boost India's growth to over 8%, easily making it world's fastest economy. But the Central bank is keen in curbing inflation to less than 5% as against present levels of ~7.5% (out-pacing growth) and hence it has refrained from slashing down interest rates which would cause the inflation to spiral out of control ultimately neutralizing growth rates.

During the eleventh five-year plan (2007-12), India's GDP (at factor cost) grew by 47% from Rs.35.64 trillion in 2007 to Rs.52.22 trillion in 2012 averaging 7.94% per annum. During the same period India's GDP at market price grew by 208% from Rs.42.95 trillion in 2007 to Rs.89.12 trillion in 2012. If the same trend is to continue, the market price GDP will cross Rs.200 trillion by 2017.

Since the economic liberalization of 1991, India's GDP has been growing at a higher rate.

Some of the other important economic development India is as follows:

India has become a key contributor in global research and of growth in the Asia-Pacific (APAC) region, playing host to one-third of top 1,000 research and development (R&D) spenders in the world, according to a Zinnov study titled 'Global R&D Benchmarking Study'

The Indian cloud market estimated at US$ 535 million in 2011 is expected to grow more than 70 per cent in 2012 and almost 50 per cent in the next three years, according to International Data Corporation (IDC)

Foreign institutional investors (FIIs) have infused Rs 4,800 crore (US$ 863.31 million) into stock markets during August 1-10, 2012 - the highest ever on a year to date basis, according to the data available with the Securities and Exchange Board of India (SEBI)

The total merger and acquisitions (M&A) and private equity (PE) deal value in July 2012 stood at US$ 2 billion, from US$ 1.4 billion in the previous month due to an increase in outbound deals, as per Raja Lahiri, Partner, Transaction Advisory Services, Grant Thornton India. "PE/ VC deal space continued to see activity in the e-commerce/ Internet space and in renewable energy. Companies which have cash will drive M&A deal momentum going forward, since the time offers good deal opportunities in terms of valuation," highlighted Lahiri

In my opinion, Indian economy will stagnate due the rising inflation

Stagflation is a situation when economic growth of a country stagnates while inflation is rising. Considering inflation would persist above the Reserve Bank's comfort zone for longer, it said, "We are reducing our expectation of further monetary policy easing to 50 basis points (0.5 percent) by December, 2012 from our earlier expectation of 75 bps (0.75 percent)".

I believe that India will continue to face stagflation-type environment for a few more months, the government's loose fiscal policy and persistent strong rise in real rural wage growth without a commensurate increase in productivity growth is at the heart of the current stagflation-type environment.

In its quarterly monetary policy review, RBI lowered the economic growth projection for the current fiscal to 6.5 percent from its earlier estimate of 7.3 percent, stating rising government expenditure poses risks to economic stability.

Its inflation forecast for the fiscal ending March, 2013 has also been raised to 7 percent from earlier projection of 6.5 percent. "We believe that monetary policy has a limited role in this stagflation-type environment. Moreover, the inflation outlook remains challenging. Indeed, given the poor progress of the monsoon, we believe that food and overall inflation will likely accelerate in the coming months," it said.

It added that the upside risks to food inflation could affect monetary policy decisions and there is limited room for further reduction in policy rates. "We expect RBI to keep policy rates unchanged in its next monetary policy review on September 17," it said.

To make the economy flourish, the Indian government can print and spend an additional amount, equal to twenty, thirty or forty percent of the GDP, in a year on productive purposes. By definition, the GDP would have increased by an additional twenty, thirty or forty percent that year (not counting the multiplier effect). The money can be spent directly by the government, through private parties or both ways though, of course, by spending the money directly, the government does not have to wait for private parties to come up with proposals.